Malaysia's May CPI modestly higher

Malaysia's inflation stayed broadly range bound in May, rising to 2.1% (April: 1.8%), in line with consensus. The impact of GST is likely to dominate inflation prints in the coming months, with the base effect washing out only from April 2016 onwards. 

In today's print, inflation rose in food, housing and services like restaurants & miscellaneous items, perhaps reflecting some lagged effects from the GST implementation. In June, inflation is likely to rise further, as the government raised retail fuel prices on the back of higher global energy prices, according to Barclays.

"The rising trend in CPI is unlikely to have a policy impact. As BNM already expects inflation to trend higher over the rest of the year, therefore, it is unlikely to respond to such prints. The current monetary stance will be maintained as underlying inflation should remain contained. 2015 inflation at 2.1%, down from 3.1% in 2014, but see modest upside risks," forecasts Barclays.

BNM is likely to keep rates on hold through most of 2015, and forecast only one 25bp rate hike in Q4 15, after the US Federal Reserve has started its own rate hike cycle, therefore, risks of this forecast rate hike being pushed out to 2016, adds Barclays.